Bringing the complaints are two groups of former and current customers of Cobb EMC, a nonprofit owned by its 175,000 customers, also referred to as members.
At the end of each year, the EMC places its excess revenue in a capital account where it is assigned to the members based on how much electricity they use. The goal is to refund the members this money when Cobb EMC is in the financial position to do so, said Robert Steele, the company’s chief financial officer.
The complaint is that Cobb EMC failed to repay its members what they were owed.
“Instead of using current year profits to repay former and long-term members of a first-in first-out (FIFO) basis, defendant uses at least a portion of its current-year margins to make rebates to current customers, thereby preferring its current members over former members,” attorneys for the former EMC customers write.
Until the lawsuit was filed in 2010, the last time Cobb EMC refunded capital credits to its members was in 1976, when it returned $500,000, Steele said.
Plaintiffs’ attorneys Samuel Pierce Jr. and Charles Gabriel of Pierce, Gabriel & Parker write in their complaint that as of Dec. 31, 2009, capital credit accounts held by current members reflect allocations totaling $182.5 million, while accounts held by former members total $134.5 million.
“A cooperative is by definition a business that returns its margins to the members through capital credits allocations and retirements,” Pierce and Gabriel write. “If an electric cooperative fails to revolve its equity and thereby develops a class of equity that is essentially permanent, it is no longer a cooperative within the meaning of this definition.”
Pierce and Gabriel cite a financial equation called the “Goodwin formula” that calculates the return on equity that a cooperative must generate in order to continue its existing rate of growth while at the same time returning capital credits to members on a 10 to 20 year cycle.
“(Cobb EMC) has no excuse for its failure to adopt and execute an equity management plan that will permit it to revolve capital credits on a reasonable cycle of 10 to 20 years while also meeting its other legitimate goals for growth and financial strength,” the attorneys write.
Yet this is debatable.
As Steele told the MDJ, each EMC is unique.
“Not only are the periods different, but the method varies from EMC to EMC,” Steele said. “I would (say) an average time may be somewhere between 20 to 25 years.”
Searching for old customers
In June 2012, Cobb EMC announced the payment of $7.1 million in capital credits to members who were customers during the years of 1957 to 1971. That money goes to eligible members based on an equation of how much electricity they used.
Cobb EMC president and CEO Chip Nelson said the average refund was $267.
As part of the announcement, the EMC mailed out 38,000 notices to the current and former Cobb EMC members who were eligible, sending those notices to their last known addresses. Thirty thousand of the 38,000 letters were returned due to bad addresses, so Cobb EMC has made other attempts to contact the 30,000 through advertising.
To date, $2.3 million of the $7.1 million has been paid out.
Steele said there is a five-year period that members have to claim the credits.
“If they are unclaimed after five years, the state law requires that the amounts be turned over to the state or donated to a qualified charity,” Steele said.
This is a sore point for two other attorneys representing the current EMC customers in the case, David Cohen and Hylton Dupree, who write in their complaint filed July 2012, “the slipshod capital rotation plan that prior EMC management has attempted to unilaterally foist upon the membership is antagonistic to both the former and current members alike. It is anemic, grossly inefficient and, if implemented, will result in the waste of millions of dollars of EMC money that will have to be donated to charity under Georgia’s unclaimed property laws.”
Because the case has been in mediation for the last few months while the company and its current and former customers attempt to reach a consensus, Pierce and Gabriel, as well as Cobb EMC attorney John Moore, said they could not discuss the matter.
“If and when there is a successful resolution to the mediation or if and when we are free to comment, we’ll be more than happy to,” Gabriel said.
Cobb EMC officials are quick to point out that the 2010 lawsuit and the $7.1 million capital credit repayment were actions that happened while the old Cobb EMC board was on its way out of office and before the new board was fully seated.
The turnover of the old Cobb EMC board is connected to the case of former Cobb EMC CEO Dwight Brown.
Dwight Brown’s downfall
There are two indictments, both under appeal, in the Brown matter. The first 31-count indictment, in which Brown was charged with violating the state’s RICO Act, theft by taking, false swearing, and conspiracy, was dismissed in Cobb Superior Court, and that dismissal was upheld by the state Court of Appeals. But the Georgia Supreme Court recently said it will review that decision. In addition, Brown was indicted a second time on 35 counts, including violating the state’s RICO Act, theft by taking, false swearing, conspiracy, influencing witnesses and threatening witnesses. Brown has appealed that indictment to the Georgia Court of Appeals.
On Monday state Rep. Karla Drenner (D-Avondale Estates) filed a bill that would increase the amount of oversight the Public Service Commission has over electric membership corporations. Specifically, HB 500 would require the PSC to review any EMC contract for the purchase of power that runs longer than five years. Drenner said HB 500 was made necessary by a high-risk, no-bid contract entered into by 11 EMCs. Led by Cobb EMC, the largest cooperative in Georgia, customers at 10 EMCs paid higher electric bills after the companies entered into no-bid agreements to join Power4Georgians. Six EMCs left the consortium after Brown was indicted on felony charges.
Georgia’s 41 EMCs provide power to approximately half of Georgia’s 9.4 million residents, with Georgia Power Co. serving the other half.
Drenner said the Public Service Commission has considerable oversight of Georgia Power, which allows it to review all rates, charges, and service rules. The PSC, however, lacks similar authority for broad oversight of the state’s EMCs, despite the comparable size of their customer base to that of Georgia Power.